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The dream of billionaire Jim Balsillie – and the city of Hamilton – to bring a seventh NHL team to Canada was dealt a blow last night when a Phoenix bankruptcy court judge rejected the sale and relocation of the Coyotes.

Judge Redfield T. Baum called off next Monday's auction of the bankrupt team, ruling:

He did not have the power to force the relocation of the Coyotes to Hamilton over the objections of the National Hockey League.

Balsillie's self-imposed June 29 deadline did not give the court the time to deal with all the other "complex" issues "fairly."

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The NHL was correct to say it needed more time to consider relocating the franchise.

"This court cannot find that antitrust law ... permits the sale free and clear of the relocation rights of the NHL," Baum ruled.

The court will likely proceed with a mid-September auction, which will see the Coyotes play in Phoenix next season and the NHL pay the club's bills until a new owner is found. If no adequate bidder comes forward, the NHL is open to allowing the team to move for the 2010-11 season.

NHL deputy commissioner Bill Daly said he's "confident" a buyer would be found to keep the team in Phoenix and meet the needs of creditors.

Balsillie spokesman Bill Walker issued an optimistic statement, insisting the RIM co-founder's application to become an owner remains with the NHL, and called for mediation and negotiation with the league on relocation fees.

"The court still controls the sale process," said Walker. "We look forward to hearing from the NHL soon on its view of our relocation application and an appropriate relocation fee, so as to allow the court to determine if that fee is reasonable.

"We still think there is enough time for the NHL to approve Mr. Balsillie's application and move the team to Hamilton by September."

But in his ruling, Baum vacated all the dates related to the auction, including one to determine the relocation fee.

"We're pleased the court recognized the validity of league rules and our ability to apply them in a reasonable fashion," said a statement issued by Daly.

The judge cited the precedent-setting nature of the case where bankruptcy law overlaps with antitrust law and commercial law as "the first case ... where a professional sports team seeks to use the rights contained (in the bankruptcy code) to force a sale and relocation of a team."

The judge said Balsillie's deadline – Balsillie had said he'd withdraw his offer if he did not own the Coyotes by June 29 – was problematic given the case's complexity.

"Simply put, the court does not think there is sufficient time for all these issues to be fairly presented to the court given that deadline," said the 19-page decision.

"Accordingly, the June 22nd auction date and other deadlines related thereto are vacated."

Balsillie launched his offer to buy the team for $212.5 million (U.S.) on May 5, when the team filed for bankruptcy.

With his offer came an unprecedented public relations campaign, complete with its own website – makeitseven.ca – that was its backbone.

The Canada-vs.-U.S., Balsillie-vs.-Gary Bettman rhetoric added to the drama and helped raise expectations that a team would be playing in Copps Coliseum for the 2009-10 season.

But legal teams for Balsillie and Coyotes owner Jerry Moyes, who stands to lose $300 million, could not convince Baum, at least in the short time they had.

Part of Balsillie's problem was the auction-style bankruptcy Moyes sought. Under the terms of an auction bankruptcy – the same kind of bankruptcy that saw Chrysler sold to Fiat – the purchaser must buy and honour all the contracts of the seller.

In this case, that meant honouring NHL by-laws that Moyes had agreed to – which give the NHL the exclusive right to relocate teams through a vote of the board of governors – and honouring the 30-year lease agreement to play at the Jobing.com arena in Glendale, Ariz.

"The assuming party (Balsillie) (must take responsibility for) the entire agreement, benefits and burdens," said the judge.

He found no reason to void those contracts.

The judge found Balsillie's arguments fell short on other matters. Balsillie lawyers argued the NHL's expected denial to allow a move to Hamilton amounted to an antitrust case.

But Baum cited precedent in the move by the San Diego Clippers to Los Angeles in 1984 that "professional sports league franchise movement restrictions are not invalid."

The judge also pointed out that Balsillie's lawyers may have been jumping the gun on antitrust because "the NHL has never made any decision about the relocation of the Phoenix Coyotes to any site."

Balsillie had been banking that the sheer size of his offer – $212.5 million – would weigh in his favour. The judge's role, after all, is to get the best deal for creditors, and Balsillie's offer pays off just about everybody, including $22.5 million to coach and minority owner Wayne Gretzky.

The offer indeed got the judge's attention. In court, Baum often referred to it as the "bird in hand" because it was the only one on the table.

Even so, there were issues with it. Because the offer was contingent upon moving the team, there were more creditors lurking in the background. If the judge granted Balsillie's wish and voided the team's lease with the city of Glendale, a penalty clause kicked in. If the lease was broken, Glendale was supposed to receive between $500 million and $800 million in damages — roughly what it would earn in rent over 30 years. And the company that ran the concessions would be owed $5 million.

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